This paper investigates the monetary policy in China over the last decades with a typical emphasis on the post-Asian crisis period. A Factor-Augmented VAR method is used to study several important monetary policy instruments and their effects on the stabilization of the Chinese economy. We find that the 7-day repo rate and a general monetary guidance, which is represented by a factor, are effective in stimulating the economic performance by promoting industrial production. However, the effects of monetary policy on price levels are still weak. A policy instrument with explicit inflation target will be a better way for China to stabilize domestic inflation, and thereby to maintain macroeconomic and financial stability.